''The processes of government have resulted in greater transparency about the true state of the labour movement,'' Mr Latham writes in the latest edition of Quarterly Essay, released on Monday.

''The ALP's rank-and-file membership has collapsed, concentrating power in an oligarchy of union-based factional leaders,'' he writes.

''Active trade unionism has also declined with the Health Services Union scandal revealing a culture of nepotism and financial abuse.''

Mr Latham, who was leader of the federal Labor opposition from 2003 until 2005, has not written off the party even as it approaches an election that may leave its parliamentary ranks denuded.

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Although climate change has proved to be a toxic issue for prime ministers Kevin Rudd and Julia Gillard, Mr Latham says the party must ''lead the debate'' on the issue that will define the 21st century.

''Labor has always been strongest when it has followed this technique: advancing a reform agenda but not getting too far ahead of public opinion,'' he writes.

''Otherwise the party will continue to shrivel into a dispirited back lot, living off the glories of the past but unable to attract and inspire the next generation of social reformers.''

Mr Latham says the party has failed to come to terms with the social consequences of the economic reforms of the Hawke/Keating governments, which opened up the economy and removed protections from many industries.

Those reforms had led to the redefining of what was once seen as the working class into the ''rising aspirationals. Families which were once resigned to a lifetime of blue-collar work now expect their children to be well-educated professionals and entrepreneurs. In this respect, Labor is a victim of its own success,'' he writes.

The economic changes had produced a new underclass Labor was all but ignoring. ''The pressing social justice issue in Australia is to address the problems of an entrenched underclass - people who have missed out on economic mobility, who are seemingly excluded from all forms of employment and social ambition.''